It’s not something we like to think about, but we all know we need to. What is the cost of a funeral these days? It depends on who you ask. One current TV ad says the cost is about $7,500, but other sources estimate $8,000 to $10,000 when you add in costs like flowers, obituaries, and the cemetery.

Cremation, if arranged through a funeral home could cost $2,000 to $4,000 plus some administrative costs, according to Caring.com, a provider of information for aging adults. The cost can be less if you deal directly with the crematorium. Statistics show that right now, burial is slightly more common than cremation, but in coming years it’s expected that more people will choose cremation.

Whichever you choose for your last wishes, if you don’t have several thousand dollars set aside for your funeral and you don’t already have a good life insurance policy in place, what are your options?

Advertisers are filling the airwaves with TV commercials aimed at the concerns of us older Americans. Day or night, there’s a steady stream of ads for “guaranteed acceptance insurance,” “senior term life insurance” or “final expense insurance.” What do these really mean?

Guaranteed Acceptance Life Insurance

“You can’t be turned down.” Sound familiar? Yes, this is the kind that Alex Trebek is a spokesman for. Is the insurance real? It is, and as he says, there’s no medical exam required and no questions.

The Upside: Again, no medical exam is needed, the premiums won’t change, and the insurer won’t cancel the policy. For seniors with serious medical issues, this is a viable option.

The Downside: It’s expensive. Any company that says “you can’t be turned down” is taking on enormous risk, and risk takers are well-compensated. In other words, the insurance is expensive, and they don’t function exactly like you’d expect. With guaranteed acceptance insurance:

• If you pass away within 2 years (for some companies, 3 years) of buying the policy, there is no death benefit (unless you suffer an accidental death). What your beneficiaries get instead is the return of the premium you paid.
• The policies are fairly small, and the older you are when you start the policy, the smaller amount you can buy. I used the quote finder to see what I — in my late 50s — qualify for. I found that the premium is the same for everyone, $79.60 per month. The variable is the total insurance you can buy. If I buy the maximum units, which was 8, that premium buys me $13,408 in death benefits. That’s high, but at least it’s enough that my offspring would not have to pay for my funeral. Then I got a quote on my mom, who is in her early 80s. For the same premium, maximum units, her death benefit is only $4,480, not enough for a standard funeral.

These policies — from various companies — are sold by the unit. The ads say 35 cents per day per unit. Sounds affordable, right? But the older you are, the smaller the unit, and there’s generally a low number of units you can buy. How much is a unit? Again, it depends on your age, gender, and the state you live in. For me a unit is $1,676. For my mom, it is $560. For both of us, this is expensive insurance and should be a last resort.

Here are some alternatives.

Senior Term Life Insurance

If you’re in reasonably good health, under age 85, and can answer four simple medical questions you can probably qualify for term life insurance. That’s insurance which is for a set period of years, like 10, 20, or 30. Here are the questions.

1. Do you smoke?
2. Do you currently reside in a hospital or long-term-care institution?
3. Have you been declared terminally ill?
4. Do you have AIDS or HIV?

If you smoke, you can still get insurance, but of course it will be more spendy. If you answer yes to any of the other three, you can’t get this type of policy. You can still get guaranteed acceptance insurance, as mentioned above.

The Upside: There is no medical exam. The death benefit is much higher than for guaranteed acceptance insurance. For me, a monthly premium of $71.46 buys me $50,000 in term life insurance (as opposed to $79.60 for a payout of $13,408 in the previous example).

The Downside: The only downside I see is that for term insurance — any term insurance —  there comes a day when the term ends, and if you’re still alive, you’ll need to apply over again. That’s assuming you haven’t aged out of eligibility.

With guaranteed acceptance, the premium doesn’t vary and the policy doesn’t end until you do.

Final Expense Insurance

This is more like whole life insurance, because it doesn’t have an end date. It’s also called end-of-life planning insurance. There’s no medical exam. Instead, you simply provide information such as:

• Age
• Gender
• Height
• Weight
• Smoking habits / tobacco usage
• Alcohol usage
• Occupation and income
• Lifestyle / dangerous hobbies

The Upside: The proceeds of this type of policy remain fixed and guaranteed, rather than subject to a certain number of years, like term policy. Premiums are locked in, and if you start a policy in your early 50s, the price is somewhat reasonable.

Generally, the only way this policy can be canceled is if you choose to cancel it by failing to pay the premium, or if there was some element of fraud. For a $10,000 policy I’d pay roughly $38 a month. That’s an average of quotes from several companies. My mom would pay an average of $106 a month for the same policy.

The Downside: There may be a waiting period before you qualify to receive the full payout. So if you pass away too soon after initiating the policy your survivors could get a fraction of the amount, depending on the policy. Also, though the name implies that it’s to be used for end-of-life expenses, there is nothing to prohibit the beneficiary from using it as he or she wishes, so be sure the person you select as the beneficiary is trustworthy.

What if You Enter Long-Term Care and Need to Apply for Medicaid?

Suppose you planned ahead for your funeral expenses, but in your later years, you end up in assisted living or a nursing home. Depending on your situation you may have to apply for Medicaid to help pay the cost of long-term care. That means you’ll need to declare your assets. Will you end up forfeiting the money and insurance you’ve set aside for your funeral? Not completely. You are allowed to maintain certain assets while on Medicaid. Among other things, you can keep several assets which can be used to help pay your final expenses, including:

• Life insurance with a face value under $1,500
• Up to $1,500 in funds set aside for burial
• Certain burial arrangements such as pre-need burial agreements that is irrevocable.
• Assets held in specific kinds of trusts.
• Up to $2,000 in cash.

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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